When Uncertainty Is Beneficial: Interesting Implications for the Hydrocarbon Discovery Process

Yigal Gerchak (), Qi-Ming He (), J. David Fuller () and Ekachidd Chungcharoen ()
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Yigal Gerchak: Department of Industrial Engineering, Tel Aviv University, Tel Aviv, 69978, Israel
Qi-Ming He: Department of Industrial Engineering, DalTech, Halifax, Nova Scotia, Canada
J. David Fuller: Department of Management Sciences, University of Waterloo, Waterloo, Ontario, Canada N2L 3G1
Ekachidd Chungcharoen: Department of Industrial and Operations Management, Thammasat University, Bangkok, Thailand

Operations Research, 2002, vol. 50, issue 6, 1068-1072

Abstract: Consider a basin with remaining undiscovered fields, in which both field sizes and their number are uncertain. Assuming that the probability of finding a field is increasing in its size, we show that the expected size of the first remaining field discovered, which is of particular importance, is increasing in the variability of field sizes, and results from a simulation model of exploration illustrate this trend for the first several fields discovered. We also provide simple bounds on the expected size of the first field discovered. It seems that more information (less variability) leads to less value---something unexpected. We explore and explain this seemingly counterintuitive result.

Keywords: Industries; petroleum/natural gas: exploration. Natural resources; energy: discovery process. Probability models (search for similar items in EconPapers)
Date: 2002
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